In the phase of economic reforms, Rao unleashed an entrepreneurial spirit which may have given shape to many schemes providing safety net under Modi govt.Shilpy Sinha | ET Bureau | December 21, 2016, 08:01 IST

Willy Brandt is not commonly associated with reforms in popular literature emerging from the Western world about reforms, but the former West German chancellor is looked upon as a reformer who laid the foundation for a modern welfare state in Europe.

When Rao began breaking up the shackles of the Indian economy, he was hobbled by coalition politics and vested interests from his own party to undertake many decisions that would have crowned him as the Brandt of India. In the first phase of economic reforms, Rao unleashed an entrepreneurial spirit which may have given shape to the many schemes providing safety net under the Narendra Modi government.

Although Manmohan Singh’s government was instrumental in talking about digital technology and building unique identification for individuals, it’s the Modi government which seems to have grabbed the initiative and used them as convenient tools to push its welfare agenda, be it direct benefit transfer, Jan Dhan accounts, Atal Pension Yojana or widening insurance coverage for farmers.

“The Modi government is building on what was started by the UPA,” says Indira Rajaraman, economist and a former member on the board of the Reserve Bank of India. “What this government has tried to do incrementally is financial inclusion, increased reach of LPG, and insurance and direct benefit transfers through Jan Dhan. Some welfare schemes have gone astray like Swachh Bharat.

Schemes linked with Jan Dhan have done well.” The jury may be out on what the Modi government is touting as the biggest reform measure – demonetisation – which the opposition calls as the worst destabilisaton. But there is a silver lining on some of the schemes that the Modi government started to push early on.

In 2015-16, the insurance industry has covered a total of 44.73 crore people under personal accident insurance, including 25.75 crore covered under the Pradhan Mantri Jan Dhan Yojana scheme.

The government’s life insurance scheme- Jeevan Jyoti Bima Yojana – a term life insurance covering a life for `2 lakh for a premium of Rs 330 a year is also fast catching up. In the last two years, three crore people have bought life insurance policies. Similarly, one can buy personal accident for Rs 12 a year for a cover of Rs 2 lakh and the number of people who have it is at 3.07 crore, up from 1.92 crore in 2015 when it was started.

“This is an organised approach to cover under social security net,” said SB Mathur, former chairman of LIC and a member of the Irda board. “Pure risk cover was never popularised before the way it is now. Realisation has come in that protection element needs to go up.”

One of the reasons for high savings and poor financial investments in the country is attributed to the lack of safety net as people are worried about the absence of a safety net. With the changes that are coming with increased insurance reach, attitude may also change.

Apart from protection, the insurance on livelihood is also making a difference with nearly half the population dependent on agriculture. Farm insurance with the backing of the government has accelerated in the past few years, which provides comfort as well as helping in diversifying crops. The coverage of kharif crops by the National Agri Insurance Scheme has grown rapidly. During the Kharif season of 2012, about 10.6 million farmers were covered with a total sum insured of Rs 27,199 crore. The number of farmers covered almost doubled to 20 million during kharif 2015 with a sum insured of `51,848 crore, data from Indian Council of Food and Agriculture shows.

Many of these measures would not have been possible without the reach of Aadhaar, the unique identification scheme which is estimated to have enrolled more than 92% of the population. Efforts have been made to link most of the bank accounts with Aadhaar. The number of accounts opened under Jan Dhan scheme has now reached 257 million as of November 2016, up from 125 million in January 2015.

Also, the number of zero balance accounts has fallen significantly to 23%, from 67.3% in January 2016. Whether demonetisation turns out to be a success or not, the government is aiming at least to have more people in the tax net which could help it accelerate the reach of welfare measures. “The government is trying to expand the tax net and use the incremental money to widen the safety net,” said SK Ghosh, an economist with State Bank of India.

When Modi came to power in 2014, many predicted that he may turn out to be the reformer who would throw out state-owned enterprises and promote capitalism on the lines of Regan or Thatcher who were popular for setting the West on growth path with their open trade and free-flow of capital policies.

“In India, 90% of the workforce is in the unorganised sector, and lacks social security like pension, medical, life or unemployment insurance,” said Ajit Ranade, chief economist at the Aditya Birla Group. “As India progresses towards becoming a developed nation, we will have to provide comprehensive social security to the poor, the unemployed, the elderly and the disabled.”

He said that NREGA currently acts as proxy unemployment insurance in rural areas. Jan Dhan Yojana has greatly helped expand financial inclusion. The connected life insurance coverage is subsidised and is helpful. The Atal Pension scheme is also a step in the right direction. Today, around 34 lakh people have opted for pension schemes in India under the Atal Yojana.

“But more needs to be done to scale up the benefits and coverage, to make them more effective,” said Ranade. “This will also need substantial fiscal resources, which thankfully will be available thanks to GST, low oil prices and part benefit of demonetisation.”

Continental Europe chose a different path which was humane, and very different from the ruthless ‘hire and fire’ policies of the US and UK. Countries like Germany, France, Norway chose a different path where there was enough safety net and corporate taxes funded programmes for the common man. Rao probably chose Brandt as his model because Germany is well known for reforms. More funds found its way to healthcare coverage, transportation, communication and housing.

Brandt laid a foundation for free enterprise but the government finance aimed at community benefits. “India is getting close to the European model of capitalism,” said Abheek Barua, economist, HDFC Bank. “We rank low on a number of parameters and the government has stepped in to improve the social security net, and justifiably so. To have welfare schemes and to push them are critical at this stage of development. States needs to play a role in upliftment of its people who have been neglected over a long period of time.”